5 Quick Check Which of the following companies would be likely to use job-order costing rather than process costing?a. Scott Paper Company for Kleenex.b. Architects.c. Heinz for ketchup.d. Caterer for a wedding reception.e. Builder of commercial fishing vessels.

6 Job-Order Costing The Job Manufacturing overhead (OH)Applied to each job using a predetermined rateDirect materialDirect laborTraced directly to each jobThe Job

25 Overhead Application ExampleEstimated total manufacturing overhead cost for the coming periodEstimated total units in the allocation base for the coming periodPOHR =$640,000160,000 direct labor hours (DLH)POHR =POHR = $4.00 per DLHFor each direct labor hour worked on a job, $4.00 of factory overhead will be applied to the job.

28 Quick Check Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53?a. $200.b. $350.c. $380.d. $730.

29 Quick Check Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 19,000. What would be recorded as the cost of job WR53?a. $200.b. $350.c. $750.d. $730.

39 Job-Order System Cost FlowsLet’s return to PearCo and see what we will do if actual and applied overhead are not equal.

40 Overhead Application ExamplePearCo’s actual overhead for the year was $650,000 for a total of 170,000 direct labor hours.How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined overhead rate of $4.00 per direct labor hour.PearCo has overapplied overhead for the year by $30,000. What will PearCo do?SOLUTIONApplied Overhead = POHR × Actual Direct Labor HoursApplied Overhead = $4.00 per DLH × 170,000 DLH = $680,000

41 Overapplied and Underapplied Manufacturing Overhead$30,000 may be closed directly to cost of goods sold.Cost of Goods SoldPearCo’s Method$30,000 may be allocated to these accounts.ORWork in ProcessFinished GoodsCost of Goods Sold

43 Quick Check What effect will the adjustment of over-applied overhead have on Pear Co’s cost of goods sold?a. Cost of goods sold will increase.b. Cost of goods sold will be unaffected.c. Cost of goods sold will decrease.

44 Quick Check What effect will the overapplied overhead have on PearCo’s net operating income?a. Net operating income will increase.b. Net operating income will be unaffected.c. Net operating income will decrease.

45 If Over/Under significant, Allocate Between AccountsDetermine the amount of overhead applied to WIP, Finished Goods and COGSCalculate the % of total Overhead applied to each accountMultiply the Over/Under amount times the %’s and allocate to each accountSee example on page 115